Felicia Tan Tue, Jun 07, 2022
UOB Kay Hian has added Frencken and Lendlease Global Commercial REIT (LREIT) to its alpha picks portfolio for the month of June.
The team’s portfolio fell 2.9% m-o-m in May, but still outperformed the benchmark Straits Times Index (STI)’s 3.7% m-o-m decline.
“Key stocks that outperformed for us were Venture (+7.4% m-o-m), ThaiBev (+2.3% m-o-m) and Keppel (+0.3% m-o-m) while mm2 (-13.8% m-o-m) and Singtel (-6.5% m-o-m) underperformed,” the team writes in their report dated June 2.
To the analysts, Frencken’s current valuations are deemed inexpensive, trading at an FY2022 P/E and EV/EBITDA of 7.5x and 3.4x respectively along with a prospective yield of 4%.
Analyst Clement Ho has kept “buy” on the counter with a target price of $1.63, which is pegged to Frencken’s FY2022 P/E of 10.4x, or its historical mean P/E range.
The group posted growth across most of its segments for the 1QFY2022 save for the automobile segment. During the quarter, Frencken’s revenue of $198.4 million, which increased by 9.3% y-o-y, was led by growth from the semiconductor, analytical & life sciences and industrial automation segments.
Sales in the medical segment remained relatively stable.
The automobile segment, however, was impacted by constrained customer demand on the back of the chip shortage and disruptions arising from the Russo-Ukraine conflict.
“We believe the global automobile industry will face an extended period of slow production amid adjustments in the global supply chain,” Ho writes.
“We maintain the view that the current forward P/E valuation of 7.7x for Frencken is attractive due to its diverse stream of revenue sources, which would help the company stand out amid a volatile macro environment,” he adds.
LREIT was also added to UOB Kay Hian’s alpha picks portfolio as the analysts are positive on the REIT’s organic growth from its new asset, Jem.
LREIT’s exposure to sequentially higher tourist arrivals, which will benefit its Orchard Road mall, [email protected], is yet another plus, in the analysts’ view.
Analyst Jonathan Koh has kept “buy” on LREIT with a target price of $1.01.
To him, LREIT’s maximising returns from Jem, which attracts shopper traffic of some 22 million a year, is a positive move.
“Management plans to unlock additional net lettable area (NLA) at level one (4,600sf) and basement one (850sf) to cater for demand for more retail space,” he says.
In addition to the return of tourists to Singapore, which would restore shopper traffic to [email protected], LREIT’s redevelopment of the Grange Road carpark is expected to be operational by early-2023.
Take profit on Singtel; SingPost removed despite bullish sentiment
Meanwhile, the analysts have removed Singapore Telecommunications (Singtel) from its portfolio, opting to take profit on the counter’s gains.
The counter has done well for the brokerage, gaining some 5% since its inception into the portfolio.
On the other hand, Singapore Post (SingPost) was dropped from the portfolio despite their bullish outlook in the medium term. The removal comes as air freight rates have not shown signs of dropping.